In my last post we began a discussion on seven different types of constraints that exists within any company. We started by discussing market constraints which occurs when the demand for a product or service is less than the capacity to produce or deliver the product or service. We finished the post by explaining four competitive edge factors that must be improved to overcome this type of constraint. In this post we will continue our discussion of constraint types by introducing several more.
Types of Constraints
Resource/Capacity Constraints exist when the ability to produce or deliver the product or service is less than the demands of the marketplace. That is, the orders are available, but the company has insufficient capacity to deliver. Resource/capacity constraints are, quite simply, not enough operators, equipment, cash, knowledge, or reliable vendors to satisfy the demands of the market. But do not be misled with this one. There is typically an irresistible urge to run off and either hire additional people or purchase additional machines, but quite often there is no need to do this. Most often the problem is associated with not squeezing the maximum amount of throughput out of the physical constraint that exists within the operation.
Before you spend money, you must make every attempt to create more capacity. “But
how?” you may be wondering. Your process is full of waste and variation, so use the tools discussed in this blog and squeeze out more capacity before you try to buy your way out of it.
Material Constraints occurs because the company is unable to obtain the essential materials in the quantity or quality needed to satisfy the demand of the marketplace.
Material constraints are very real for production managers, and I cannot tell you how often I have heard managers lament that if they just had the materials, they could make the products. In fact, over the years this has been such a problem that material replenishment systems like MRP and ERP were invented to ensure material availability. However, as you know, even with MRP and ERP, and its various iterations, material shortages (constraints) are still a common occurrence. Even MRP or ERP cannot predict scrap, or defects, or equipment downtime, or human-related causes like sickness.
I once consulted for a company that produced buses that was always missing due dates. Although this company had many other problems, one of the biggest problems involved the excessive time required to procure parts and materials. By creating a value stream map (VSM), we were able to pinpoint the major source of material delays as the company’s purchase order (PO) process. We reconfigured the PO process and implemented pull systems and were able to reduce the overall procurement time by 65 percent. In reality, a material constraint is a subset of a resource/capacity constraint.
Supplier/Vendor Constraints arise because of an inconsistent supplier or because of excessive lead times in responding to orders. This type of constraint is closely related to material constraints, and the net effect of this type of constraint is that because the raw materials are late arriving, products cannot be built and shipped on schedule. A supplier/vendor constraint is also a subset of a resource/capacity constraint. Let us look at an example.
I once worked in a company that designed, manufactured, and installed truck bodies. The company was losing market share, and I was asked to look into why this was happening. I created a value stream map (VSM) and identified the constraint as being the order entry system. All orders had to pass through engineering to receive a build quote before the company would provide a quote to the customer. The VSM indicated that the average time spent in engineering had increased to forty calendar days. As a result of this delay, customers were simply going elsewhere. Through value analysis and problem-solving techniques, we were able to reduce the engineering lead time from forty days to an average of forty-eight hours.
Because the quality of our products was superior and the cycle time through production was the best in the industry, we were able to increase market share to levels never before seen. All this by identifying one constraint. In reality then, there are two types of constraints that limit a company’s ability to make money now or in the future: the marketplace (not enough orders) and the capacity to satisfy the marketplace (lack of capacity to deliver existing orders). Each of these two types of constraints is diametrically opposite and requires a completely different focus.
In my next post we’ll complete our discussion on the seven types of constraints. As always, if you have any questions or comments about any of my posts, leave me a message and I will respond.
Until next time.
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